Obama proposes $33 billion in tax breaks for creating new jobs, expanding payrolls

By Stephen Ohlemacher, AP
Friday, January 29, 2010

Obama retools tax credit idea for creating jobs

BALTIMORE — President Barack Obama renewed his call for tax incentives to create jobs Friday, saying a greater effort is needed even though his administration has “stopped the flood of job losses.”

Obama wants to give companies a $5,000 tax credit for each net new worker they hire in 2010. Also, businesses that increase wages or hours for their existing workers in 2010 would be reimbursed for the extra Social Security payroll taxes they would pay.

No company could reap more than $500,000 from the combined benefits, one of several features meant to tailor the program more to small businesses than to large corporations.

House Democrats rejected a similar proposal last month after questioning how it would work. On Friday, some GOP lawmakers called the retooled plan too tepid; Rep. Mike Pence of Indiana described it as “a tax credit which was last promoted by President Jimmy Carter.”

But Obama urged Congress to enact it, saying economists consider it an effective way to spur job growth.

“It’s time to put America back to work,” the president told workers after touring the Chesapeake Machine Company in Baltimore. “We’ve had two very tough years. And while these proposals will create jobs all across America, we’ve got a long way to go to make up for the millions of jobs that we lost in this recession.”

Obama later spoke to a gathering of House Republicans in Baltimore.

“You may not support our overall jobs package, but if you look at the tax credit that we’re proposing for small businesses right now, it is consistent with a lot of what you guys have said in the past,” Obama told Republicans.

Under Obama’s plan, which he mentioned in Wednesday’s State of the Union address, companies created in 2010 could receive up to $250,000 in the tax benefits. Existing companies could not close down and then reopen under a new name and receive any benefits, the White House said.

The program would end Dec. 31 and would cost an estimated $33 billion. Obama wants to fund it with money repaid to the government from the 2008-09 bank bailout program. The Social Security system would not lose any revenue under the plan, which officials described Thursday ahead of Obama’s Baltimore visit.

Obama said his revised proposal will be less susceptible to abuse from employers trying to game the system. Companies that fire workers and then quickly replace them would not qualify for the tax breaks, he said.

Some tax experts say it is hard to prevent abuse by companies that artificially increase their payrolls. But White House officials said they believed regulators would detect such attempts in the great majority of cases.

Wage increases for high-income employees would not qualify for tax breaks. No one pays Social Security payroll taxes on income above $106,800, so any pay increases above that level would trigger no reimbursement to the employer.

Despite the House’s recent rejection of a similar plan, the idea of tax credits for job creation has caught on among Senate Democrats. They plan to include such a credit in a scaled-down jobs bill to be voted on in February.

The nonpartisan Congressional Budget Office recently analyzed several proposals to create jobs and improve the economy and concluded that a payroll tax credit for companies that increase payroll would be among the most effective. However, the analysis cautioned that it could be difficult to administer.

Congress enacted a similar tax credit in the 1970s and few small businesses took advantage, the CBO report said.

Obama hailed Friday’s government report that showed a greater-than-expected economic surge in the last quarter of 2009, but noted many people are still struggling.

Republicans generally embrace almost any tax cut proposal, but Obama got a lukewarm reception for his proposal from GOP leaders in Baltimore.

“From a policy perspective, it’s very difficult to make it work,” said House Minority Leader John Boehner, R-Ohio.

Pence said he understands why a tax break for adding jobs would be popular. But, he said, businesses won’t hire new employees until there is increased demand for their products.

Associated Press reporter Charles Babington in Washington contributed to this report.

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